An Introduction to Banking, 2nd Edition

PART IIAsset–Liability Management and Liquidity Risk

Part II gets into the nitty‐gritty of balance sheet risk management, with a detailed look at asset–liability management (ALM), liquidity risk management, and interest‐rate risk in the banking book (IRRBB). The remaining tenet of ALM, regulatory capital management, we save for Part III.

As part of the review of liquidity risk, we consider best‐practice processes in the following areas:

• Managing the liquid asset buffer;
• Optimum liabilities mix strategy;
• Individual liquidity adequacy assessment process (ILAAP);
• Funds transfer pricing;
• Analysing net interest margin (NIM); and
• Securitisation for balance sheet management.

There is also a chapter on asset–liability committee (ALCO) governance framework best practice, which is important for all banks, be they large or small.